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Up FrontThe Cat's Out of the Bag

Is there a problem with drywall contractors' paying employees as subcontractors?

It's awfully easy for us here at Walls & Ceilings to tell you contractors how to run your businesses. How to get your customers, how to keep them, how not to lose business to the low bid, etc., etc.

But one reader recently wrote to tell me there seems to be no solution to an ongoing and detrimental problem to those committed to putting in an honest day's work. I'll call this reader Josie, even though she's more of a tiger than a pussycat.

Josie and her husband are frustrated over some drywall contractors' alleged illegitimate business practice of paying employees as subcontractors.

"This practice has driven the prices in our industry so low that to have employees has become a health hazard, both to my husband and our business," she says.

Most of you already know how the system works. Because Josie and her husband pay their workers as employees, as required by law, they pay $400 a month in contractors liability. Workers' compensation costs $1,500 a month, and unemployment insurance costs $800 a month. They match each employee's Social Security and Medicare dollar for dollar, also as required by law. They also award their folks paid vacation time.

Contractors who claim no employees and hire workers as subcontractors avoid those costs. In her state, they pay $35 a month for a general liability certificate of insurance. With overhead this low, Josie says, those contractors can underbid their company every time.

"No matter how low we go, they can go lower," she says. "And the real clincher is some of them are awarded the jobs over a $250 difference."

Is that just a smarter way to conduct business? No way, Josie claims.

"The employee who is allowing his boss to pay him this way is taking a huge risk in the event of injury. But the appeal to him is that instead of taking home a net paycheck he takes home his gross."

She says they're also ruining the industry for everyone else.

"We do all we can to provide (our employees) with a good job and one they can be proud of. Instead of every year being able to raise our prices to accommodate this expense, as well as cost-of-living increases, the worker's comp insurance, vehicle expense and now the price of gas, we are forced to lower our prices, placing extreme financial duress on us," Josie says. "We have good employees because we make sure we do the right thing by them and try to compensate them for the backbreaking, dangerous work they do.

"Unfortunately, if we have to continue to lower our prices there will come a point where we will be unable to provide them with the compensation they deserve. And they will be forced to look for employment elsewhere."

Let's hope these good employees don't end up jumping ship and going with the fat-cat illegitimate guys. They deserve better. Perhaps if the Department of Labor and Industry and state compensation bureaus deterred people more effectively, enforcing the laws they created, it wouldn't be an issue.

If Josie gets her way, they will. And watch out, cheaters: She's on the prowl.

Check out the May 2020 edition of Walls & Ceilings: The devoted team of Green Country Drywall at a recent job site in Oklahoma, rainscreen drainage and ventilation mats, SBA loans via the CARES act, and much more!